INTRODUCTION
Uncertainty refers to the situation in which the lack of complete certainty makes it difficult for organizations to predict future conditions (Hubbard, Reference Hubbard2007). As many scholars have shown, by restricting organizations’ strategic decision making, it usually has negative effects on the performance and the very survival of organizations (Lawrence & Lorsch, Reference Lawrence and Lorsch1967; Milliken, Reference Milliken1987; Bergh & Lawless, Reference Bergh and Lawless1998).
Organizations thus try to manage the risks of uncertainty in various ways (March & Simon, Reference March and Simon1958; Lindsay & Rue, Reference Lindsay and Rue1980; Porter, Reference Porter1980)Footnote 1. For instance, they invest in more resources and time to understand the situation (Sawyerr, Reference Sawyerr1983; Elenkov, Reference Elenkov1997), increase slack resources and build buffer mechanisms to prepare for the risks of uncertainty (Cyert & March, Reference Cyert and March1963; Thompson, Reference Thompson1967), imitate the behaviors of other organizations (DiMaggio & Powell, Reference DiMaggio and Powell1983), develop strategic flexibility to improve their adaptive capability (Sanchez, Reference Sanchez1995, Reference Sanchez1997; Young-Ybarra & Wiersema, Reference Young-Ybarra and Wiersema1999), or adopt a strategy to tackle uncertainty aggressively (Burns & Stalker, Reference Burns and Stalker1961; Lawrence & Lorsch, Reference Lawrence and Lorsch1967).
Then, what strategies are needed for organizations in cultural industry to manage the risks of uncertainty arising from the export of movies? To answer the question, this study examines the effects of three uncertainty management strategies: market signaling, generalist strategy, and vertical integration. As well known, under the situation of uncertainty, organizations often adopt these strategies to manage the risks of uncertainty by attracting potential consumers’ attention, spreading the risks across a broad range of niches, and decreasing transaction costs. Focusing on the case of the Korean movie industry, this study thus analyzes the effects of these strategies on the export performance of moviesFootnote 2. Specifically, by analyzing the data of all Korean movies released from 2000 to 2004, it shows that these strategies can contribute to improving the export performance of movies and help organizations effectively manage the risks of uncertainty arising from the export of movies. Environmental uncertainty is not a given constraint that organizations must passively accept. By adopting various strategies, this study shows, organizations can proactively manage such uncertainty. Let us examine first the uncertainty arising from the export of cultural goods.
UNCERTAINTY ARISING FROM THE EXPORT OF CULTURAL GOODS
Uncertainty is an inherent characteristic of cultural industry, specifically, of the movie industry (Hirsch, Reference Hirsch1972; Faulkner & Anderson, Reference Faulkner and Anderson1987; Caves, Reference Caves2000). The nature of cultural goods both as ‘non-essential luxury goods’ and as ‘experience goods’ makes uncertainty an inherent characteristic of cultural industry. As well known, most cultural goods are non-essential luxury goods, the lack of which does not cause consumers to feel inconvenient. It is thus very difficult to predict the success or failure of cultural goods. In fact, no one can accurately predict box office returns in the movie industry (Bielby & Bielby, Reference Bielby and Bielby1994; Caves, Reference Caves2000). In a similar context, the fact that cultural goods are experience goods, the quality of which is difficult to ascertain before the experience occurs makes it difficult to predict the success or failure of cultural goods (Shapiro, Reference Shapiro1983; Bergemann & Välimäki, Reference Bergemann and Välimäki2006).
The uncertainty of cultural industry increases further when organizations export their cultural goods (e.g., movies) overseas. While the export enables organizations to expand into new markets (Young, Hamill, Wheeler, & Davis, Reference Young, Hamill, Wheeler and Davis1989; Bernard & Jenson, Reference Bernard and Jenson2004; Sousa & Bradley, Reference Sousa and Bradley2009), it usually leads them to face high uncertainty arising from the differences of regulation, the fluctuation of foreign exchange rates, and the political uncertainty of foreign countries (Mascarenhas, Reference Mascarenhas1982; Krugman, Reference Krugman1989). Moreover, the ‘cultural discountFootnote 3’ resulting from the cross-country differences in language, culture, religion, and social conventions brings about more uncertainty in the export of cultural goods than of other manufactured goods (Zaheer, Reference Zaheer1995; Reference Zaheer2002; Brannen, Reference Brannen2004; Rauch & Trindade, Reference Rauch and Trindade2009)Footnote 4. For these reasons, since the early stages of their globalization, Hollywood film productions have paid special attention to marketing and distribution in foreign countries, and tried their best to overcome ‘the liability of foreignness’ which inevitably accompanies the export of movies (Hoskins, McFadyen, & Finn, Reference Hoskins, McFadyen and Finn1997; Elberse & Eliashberg, Reference Elberse and Eliashberg2003).
The organizations which export cultural goods overseas, therefore, face an extremely high level of uncertainty. Then, how can they manage the risks of uncertainty? Focusing on the case of the Korean movie industry, this study will show that strategies such as market signaling, generalist strategy, and vertical integration can help organizations manage effectively the risks of uncertainty arising from the export of cultural goods while improving their export performance.
Hypotheses
To examine the effects of uncertainty management strategies on the export performance of movies, this study suggests three hypotheses. Let us examine these hypotheses one by one.
Market signaling
The fact that cultural goods are experience goods, the quality of which is difficult to ascertain in advance, often creates an information asymmetry between consumers and suppliers. That is, consumers have to purchase cultural goods without knowing their actual quality while suppliers are fully aware of it (Akerlof, Reference Akerlof1970; Spence, Reference Spence1973; Holmstrom, Reference Holmstrom1979). This problem increases further in the global context because information asymmetry exists to a greater degree in the global market than in the domestic market. To overcome this asymmetry, therefore, suppliers have to send market signals to potential consumers in the global market (Camerer, Reference Camerer1988; Heil & Robertson, Reference Heil and Robertson1991; Moore, Reference Moore1992).
For effective market signaling, however, it is crucial for suppliers to increase the visibility of signals because visibility can influence a particular audience's assessment of organizational activities (Tversky & Kahneman, Reference Tversky and Kahneman1974; Fombrun & Shanley, Reference Fombrun and Shanley1990). High visibility is also required because people usually consider products receiving greater media attention to be of greater importance (McQuail, Reference McQuail1985). Finally, compared with those in the domestic market, potential consumers in the global market may have more difficulty in obtaining accurate and sufficient information needed to evaluate the products, which makes visibility even more important in the global market than in the domestic market.
In the movie industry, the main actor or actress is one of the most visible resources. This is particularly true in the global movie market, where the audience tends to evaluate the imported movies based on easily obtainable information about the main actor or actress. With this in mind, this study assumes that audiences in the global movie market would prefer movies that feature famous movie stars and that the casting of movie stars with high visibility would be helpful for effective market signaling. In fact, many empirical studies have already shown that the casting of movie stars and the use of their star power can be an effective means of market signaling in the domestic market (Sawhney & Eliashberg, Reference Sawhney and Eliashberg1996; Albert, Reference Albert1998; De Vany & Walls, Reference De Vany and Walls1999). In line with these studies, this study assumes that the casting of movie stars with high visibility will have positive effects even in the global movie market. So, the first hypothesis is as follows:
H1: The casting of movie stars with high visibility will have a positive relationship with the number of countries to which the focal movie is exported.
Generalist strategy
‘Niche width’ indicates the range of environmental dimensions across which a population or an organization exists and, depending on niche width, we can distinguish two types of organizations: the ‘generalist’ ones utilizing a broad range of niches and the ‘specialist’ ones concentrating on a narrow range of niches (Carroll, Reference Carroll1985). Of these two types, according to organizational ecology, when environmental uncertainty is high, the former typically show lower mortality rates than the latter (Freeman & Hannan, Reference Freeman and Hannan1983). That is, they can hedge against the uncertainty in a specific market segment or industry by spreading the risks across a broad range of niches (Dobrev & Kim, Reference Dobrev and Kim2006). Even when the environmental conditions of some market segments deteriorate, they can recover the loss from other market segments (Carroll, Reference Carroll1985). In contrast, the specialist ones which focus on a narrow range of niches are likely to fail when their focused market segments deteriorate.
Adopting a generalist strategy, however, does not always have positive effects on organizational performance. It is true that organizations can attract a wider range of customers by adopting this strategy, but at the same time their products may be less attractive to some customers who have specific tastes and preferences. Moreover, because the diversification of target segments can result in reduced investment and the paying of less attention to each segment, the products produced under this strategy may be less appealing to each of the targeted audiences (Hannan & Freeman, Reference Hannan and Freeman1989; Hsu, Reference Hsu2006). It is thus necessary for organizations to have their own specialties focusing on a specific segment. Additionally, compared with the specialist ones, the generalist organizations which spread their resources and capacities across diverse segments are less likely to communicate with their audiences because they cannot market clear identities to their relevant audiences (Hsu, Reference Hsu2006; Hannan, Pólos, & Carroll, Reference Hannan, Pólos and Carroll2007). Because of these drawbacks of a generalist strategy, Hsu (Reference Hsu2006) argues that there is a trade-off between an organization's niche width and its performance.
Many empirical studies focusing on the movie industry show that a generalist strategy may have both positive and negative effects on performance. For example, with the cases of Hollywood movies, Hsu (Reference Hsu2006) demonstrates that a multi-genre movie, produced under a generalist strategy, can attract more audiences, but be less appealing to the audiences than a single-genre movie. Similarly, Hsu, Negro, and Perretti (Reference Hsu, Negro and Perretti2012) show that a hybrid movie, produced under a generalist strategy, can achieve exceptionally high success due to the innovative role of recombination, but at the same time may have the high possibility of failure in the market. All these suggest that a generalist strategy in the movie industry may have positive effects on the performance of movies to some extent, but after a certain point, relying excessively on the generalist strategy may have negative effects on performance.
Then, we can predict, on the one hand, that a generalist strategy may be helpful for managing the risks of uncertainty arising from the export of movies to some extent because the exported movies produced under this strategy can appeal to various customer groups in different countries. Considering the diversity of customers in the global market, it may be very risky to adopt a specialist strategy which focuses on a specific taste or genre. On the other hand, excessively relying on a generalist strategy may increase the risks by limiting differentiation. For example, an imported foreign movie with a generalist strategy may fail to differentiate itself from competitors such as domestic movies or imported movies from other foreign countries, which would affect its performance negatively. It must also be considered that because people experience more difficulty in understanding foreign movies’ identities than those of domestic ones, movies with a clear and simple identity can be more easily understood than those with a complex and ambiguous identity in foreign markets.
Taking these points into account, this study assumes that a generalist strategy would have an inverted U-shape curve-linear relationship with the export performance of movies. That is, an increase in the focal movie's niche width (i.e., genres) will have positive effects on its export performance to some extent, but after a certain inflection point, the increased niche width will rather hamper its export performance. So, the second hypothesis is as follows:
H2: A generalist strategy in the genres of a movie will have an inverted U-shape curve-linear relationship with the number of countries to which the focal movie is exported.
Vertical integration
According to transaction cost economics, vertical integration can serve to reduce the risks of uncertainty by decreasing transaction costs (Williamson, Reference Williamson1975). As well known, under the situation without uncertainty, a perfect contract which covers a full range of possibilities can be concluded, so that there is no need for vertical integration (Fan, Reference Fan2000). Under an uncertain situation, however, contracts are often less perfect because of unpredictable contingencies, which leads to increased costs to resolve the conflicts arising from these contingencies. Under an uncertain situation, therefore, organizations often try to reduce the risks of uncertainty by pursuing vertical integration, that is, by bringing market transactions under their control (Williamson, Reference Williamson1985; Sutcliffe & Zaheer, Reference Sutcliffe and Zaheer1998). Empirical data support the positive correlation between increased uncertainty and vertical integration (Helfat & Teece, Reference Helfat and Teece1987; Shelanski & Klein, Reference Shelanski and Klein1995; Rindfleisch & Heide, Reference Rindfleisch and Heide1997).
In the movie industry, where perfect contracts are impossible to make because of high uncertainty, organizations also try to reduce the risks of uncertainty by pursuing vertical integration among producers, distributors, and investors (Blackstone & Bowman, Reference Blackstone and Bowman1999; Jwa & Lee, Reference Jwa and Lee2006; Choi, Reference Choi2007; Lee, Choe, & Jeong, Reference Lee, Choe and Jeong2009). In particular, vertical integration in the movie industry can serve to ensure the predictability and stability of movie production by increasing the cooperation among organizations (Van Gelder, Reference Van Gelder1996; Blackstone & Bowman, Reference Blackstone and Bowman1999; Mezias & Mezias, Reference Mezias and Mezias2000; Fu, Reference Fu2009; Gil, Reference Gil2009). For example, Lampel, Lant, and Shamise (Reference Lampel, Lant and Shamise2000) show that vertical integration in the movie industry enables producers and investors to secure a reliable source of demand while enabling movie theaters to secure a stable source of film supply in the future.
Then, we can infer that vertical integration would have positive effects even on the export performance of movies. In fact, if the producer and the distributor collaborate in the early stage of the movie production processes, they are more likely to consider the issue of foreign distribution, which leads them to make the movies more appealing to foreign audiences and eventually contributes to improving the export performance of movies. Moreover, the recent increase of pre-sales in the global film market (i.e., exporting films before the completion of production or before the official release) makes vertical integration more significant in the global market than in the domestic market. That is, by increasing the predictability and stability of movie production, vertical integration serves to bring a level of security to a film importer who purchased a film in the pre-sale market but is uncertain about the completion of the film production, the final quality of the film, and the stable distribution of the film, and thereby contributes to improving the export performance of movies.
Vertical integration, however, is not always a better form of organizational structure. As many studies show, organizations need some flexibility to adapt themselves to environmental changes under high uncertainty (Sanchez, Reference Sanchez1995; Reference Sanchez1997; Young-Ybarra & Wiersema, Reference Young-Ybarra and Wiersema1999), but vertical integration often limits this flexibility. In this context, Harrigan (Reference Harrigan1985) and Porter (Reference Porter1980) argue that vertical integration can be a potential liability for organizations in volatile industries. D'Aveni and Illinich (Reference D'Aveni and Illinich1992) also argue that vertical integration under uncertainty may serve to increase risks.
Many empirical studies focusing on the movie industry also show that managing uncertainty through vertical integration can make organizations rigid and bureaucratic at the expense of creativity and flexibility (Lampel, Lant, & Shamise, Reference Lampel, Lant and Shamise2000; Mezias & Mezias, Reference Mezias and Mezias2000). In fact, there is always the possibility that, by making organizations rigid and bureaucratic, vertical integration between the producer and distributor prevents the producer from finding a more relevant distributor according to the changing conditions of the global movie market or to the particular characteristics of the importer countries.
Then, we can infer that vertical integration would have negative effects on the export performance of movies. That is, when exporting movies overseas, organizations need to have ‘strategic flexibility’ in their structure to fit the changing situations of the foreign countries and of the global movie market (Sanchez, Reference Sanchez1995, Reference Sanchez1997; Young-Ybarra & Wiersema, Reference Young-Ybarra and Wiersema1999). Vertical integration, however, makes it difficult for organizations to have such strategic flexibility, thereby affecting their export performance negatively.
Hence, this study assumes that vertical integration in the movie industry would have both positive and negative effects on the export performance of movies. That is, on the one hand, it would contribute to the export performance of movies by reducing transaction costs (e.g., by ensuring a stable source of film supply in the future), but on the other hand, it would affect it negatively by limiting the flexibility of organizations. This study thus suggests the following two conflicting hypotheses.
H3.1: Vertical integration in the production processes of a movie will have a positive relationship with the number of countries to which the focal movie is exported.
H3.2: Vertical integration in the production processes of a movie will have a negative relationship with the number of countries to which the focal movie is exported.
DATA AND METHOD
For the analysis, this study uses the data of 308 Korean movies released between the years of 2000 and 2004 available from the Korean Movie Data Base (KMDB), which provides information about the genres, all the staff members, including directors and actors, and the awards received by each movie. When necessary, it also acquires additional data from the Korean Movie Yearbook published by the Korean Film Council (KOFIC). Meanwhile, the variables of this study are measured as follows.
Dependent variable
For measuring the dependent variable, that is, the export performance of movies, this study uses the number of countries to which the focal movie is exported. The Korean movie industry experienced unprecedented qualitative growth in the early 2000s. For example, the number of film production companies increased from 30 to 2,747 between 1985 and 2008, while the number of movie theaters increased from 561 to 2,081 during the same period (KOFIC, 2010). Moreover, the recent Hallyu boom has contributed to the increasing popularity of Korean movies in Asian countriesFootnote 5. Despite these successes, the export performance of Korean movies has been in stasis in recent years with the number of export destinations limited only to a few countries, which makes the Korean movie industry susceptible to the political or economic changes of the target country. Many scholars thus argue that in order to achieve qualitative and quantitative improvements, it is now necessary for the Korean movie industry to enter new markets (KOFIC, 2006). Taking this point into account, this study uses the number of countries to which the focal movie is exported as an indicator for measuring the export performance of the focal movie, and in this regard is differentiated from other studies which use as an indicator whether or not a movie is exported, or the box office hit of a movie (Seagrave, Reference Seagrave1997; Jayakar & Waterman, Reference Jayakar and Waterman2000; Lee, Kim, & Jun, Reference Lee, Kim and Jun2009; Kwak & Zhang, Reference Kwak and Zhang2011)Footnote 6.
Independent variables
The first independent variable, the casting of movie stars with high visibility, was measured as follows. A list of movies in which the leading actors and actresses of the focal movie were cast in the last 5 years was collected. From the list, the number of movies in which the focal actors or actresses played a leading role was counted to calculate the ratio of movies in which each actor or actress played a leading role in the last 5 years. The average ratio for the two focal leading actors and actresses was used as the value of the casting of movie stars with high visibilityFootnote 7.
The second independent variable, a movie's generalist strategy, was measured by counting the number of genres featured in the focal movie on the basis of the genre data provided by the KMDB.
The third independent variable, vertical integration, was measured by checking each movie's producer, distributor, and investor, and then by assessing the degree of vertical integration among these three organizations in the production processes. That is, if at least two of these three organizations were identical, it was regarded as vertical integration but, if not, as non-integration.
Control variables
When designing the research model, we include the following as control variables.
Use of a new director
We control for whether or not the focal movie uses a new director. In general, a director is considered to be the most important human resource in the movie production and the person who determines the movie's competitiveness. Accordingly, audiences tend to infer the characteristics and the competitiveness of a movie based on information about the movie director. Therefore, whether or not the director of a movie already has established a reputation in the movie industry could be a good source of information in evaluating the focal movie, so we control for this variable.
Presence of an original work
We also control for whether or not the movie is an original work. In the case of a movie with a highly uncertain pre-experience quality, the uncertainty in the production processes can be largely reduced if the filmmaker employs a scenario that has been well-received by critics and the public in the past. For this reason, we control for the presence of an original work which has previously been acclaimed in other mediums, such as a novel, before the movie was made.
Movie rating
Movie rating can affect the export performance of the focal movie by limiting the age range of audience. So, we control for whether or not the focal movie is an R-rated movie which is restricted for adult audience.
The number of international film festival awards
In addition, we control for the number of awards which the focal movie has received in international film festivals. As well known, international film festival awards can have important implications. They are usually used to signal the superior quality of a movie, and movies of higher quality are more likely to receive attention from foreign audiences. Moreover, receiving international film festival awards leads to the improved export performance of the movie due to increased media exposure to the public. That is, movie producers can reap a huge advertising effect by winning international film festival awards because such news sparks the interest of audiences toward the movie. We thus expect that the number of international film festival awards that the focal movie received would significantly affect its export performance, and for this reason include this number as a control variable.
Experience of global joint production
We also control for whether or not the producer of a focal movie has experienced global joint production. It is highly possible that, if the producer has experienced global joint production, then s/he might establish a variety of personal and material networks with the corresponding foreign countries, and acquire large-scale information and knowledge about foreign movie industries. We thus expect that the producer's experience of global joint production would have positive effects on the export performance of the focal movie. So, we control for this variable.
Local specific contents
We also control for whether or not the focal movie has local specific contents. In general, the ‘cultural distance’ between exporter and importer countries is considered one of the most significant factors in the export of cultural goods (Hofstede, Reference Hofstede1983, Reference Hofstede2001). We thus expect that movies which have a universal theme that is appealing across cultures would have better export performance than movies which have local specific contents reflecting the unique culture and history of a specific country (Fu, Reference Fu2006). So, we control for this variable.
Art movie
We also control for whether or not the focal movie is an art movieFootnote 8. Usually the art movies, produced for specific groups at a niche market, are less appealing to foreign audiences than the commercial movies, produced for mass audiences. We thus expect that the art movies would have worse export performance. So, we control for this variable.
The size of the producer
Furthermore, we control for the size of the focal movie's producer. Because movie production requires enormous manpower and costs, the number of movies that a movie producer can produce reflects its ability of resource mobilization as well as its status in the field. We thus expect that the number of movies produced by the focal movie's producer would significantly affect the export performance of the focal movie, and for this reason include this number as a control variable.
The size of the distributor
For similar reasons we control for the size of the focal movie's distributor. As well-known, distributors play an extremely important role in exporting movies to global markets, and their ability to secure and to distribute more movies reflects their power and status in the industry. We thus expect that the number of movies that the focal movie's distributor distributes would significantly affect the export performance of the focal movie, and for this reason included this number as a control variable.
Year dummies
Finally, we include year dummies to control for the effects of yearly changes within and outside of the movie industry on the export performance of each movie.
Method
The fact that the dependent variable has a limited range of positive integer values makes ordinary least squares regression techniques inappropriate for the analysis. So, we ran negative binomial regressions for hypothesis testing (Hausman, Hall, & Griliches, Reference Hausman, Hall and Griliches1984; Long, Reference Long1997). Another popular method to run regressions for event count variables is Poisson regression (Hausman, Hall, & Griliches, Reference Hausman, Hall and Griliches1984). However, its assumption about the congruence between conditional mean and conditional variance rarely holds true in practice. To avoid this problem, when running negative binomial regression, we generalized over-dispersion by taking into account the effects of random variables on the conditional mean.
RESULTS
While (Table 1) shows descriptive statistics and correlations (Table 2), summarizes the results of the negative binominal regression. In particular, Model 1 of (Table 2) shows the baseline model, which only includes control variables. Meanwhile, Models 2, 3, and 4 show the results of our analyses, each of which includes three independent variables separately, and Models 5, 6, and 7 demonstrate the robustness of our results by testing various combinations of variables in nested models. Finally, Model 8 shows the full model, which includes all of the independent and control variables.
Descriptive statistics and Pearson's correlation coefficients
Notes: n=308.
*p < .05, **p < .01, ***p < .001.
Results of negative binomial regression
Notes: Values in parentheses are standard errors.
**p < .01, ***p < .001
First of all (Table 2), reveals that, among the various control variables, the variables of ‘the number of international film festival awards’ and ‘the size of the distributor’ have statistically meaningful positive effects on the number of foreign countries to which the focal movie is exported in all models, while the variables of ‘use of a new director,’ ‘presence of an original work,’ ‘experience of global joint production,’ ‘local specific contents,’ ‘art movie,’ and ‘the size of the producer’ have no statistically meaningful effects. It also reveals that the R-rating has significantly negative effects.
From this we can infer that receiving international film festival awards, which itself has huge advertising effects, can contribute to improving the export performance of movies by increasing the awareness of the focal movie in the global market. Seen from the perspective of a film importer, the fact that the focal movie received an international film festival award means that the movie's quality was recognized by an expert group, which serves to reduce the risks of uncertainty arising from the import of foreign movies and eventually leads to the improvement of the export performance of the focal movie.
It is also noteworthy that of the two similar control variables, ‘the size of the producer’ and ‘the size of the distributor,’ only the latter has statistically meaningful positive effects on the export performance of movies. This suggests that two different mechanisms are working in the global and domestic markets, and that distribution-related matters (e.g., managing complicated administrative works in the export of movies) are more significant than production-related matters (e.g., mobilizing human and material resources) in improving the export performance of movies.
Meanwhile, regarding the relationship between the three independent variables and the dependent variable, the analysis confirms Hypotheses 1, 2, and 3.1. First, Models 2, 5, 6, and 8 indicates that the casting of movie stars with high visibility has positive effects on the export performance of movies as predicted in Hypothesis 1. Second, Models 3, 5, 7, and 8 show that a movie's generalist strategy has an inverted U-shape relationship with the export performance of movies as predicted in Hypothesis 2. In these models, the point of inflection is 4.3. Because the values of a movie's niche width in the sample are distributed between 1 and 7, we could confirm that the configuration of the inverted U-shaped relationship is valid. That is, as the focal movie's niche width increases, its export performance increases up to the point of inflection but after the inflection point, the further increase of niche width has negative effects on the export performance of movies. Finally, Models 4, 6, 7, and 8 show that, of the two conflicting hypotheses regarding the relationship between the focal movie's degree of vertical integration and its export performance, a positive relationship is confirmed as predicted in Hypothesis 3.1, which suggests that the benefits of vertical integration exceed its drawbacks when it comes to the export of cultural goods in the global market.
CONCLUSION AND DISCUSSION
This study has examined the effects of uncertainty management strategies on the export performance of movies. First, it has shown that the strategy of market signaling, that is, the casting of movie stars with high visibility, has a positive relationship with the export performance of a movie. This means that by sending market signals to foreign audiences (i.e., by casting movie stars with high visibility), organizations can manage the risks of uncertainty effectively even in the global market. Then, considering that the casting of movie stars is not the only means of market signaling, it would be very interesting for future researches to analyze the effects of other means of market signaling – for example, the use of an internationally recognized director – on the export performance of movies.
Second, this study has shown that a generalist strategy in the genres of a movie has an inverted U-shape curve-liner relationship with the export performance of a movie. Given the fact that the analysis of the domestic film market reveals a similar result, this result can be regarded as suggesting that a movie with a complex identity to understand may be less appealing not only to domestic but also to foreign audiences.
Third, this study has shown that by ensuring the predictability and stability of movie production, the strategy of vertical integration among producers, distributors, and investors affects positively on the export performance of a movie. This means that the organizations integrating vertically with other organizations are able to enjoy more benefits in the global market than those not engaged in such integration. However, considering that by limiting flexibility vertical integration may also have negative effects on the performance, it may be necessary for future researches to analyze the effects of vertical integration in various contexts.
In addition, this study helps us understand what strategies are needed for small and medium-sized enterprises (SMEs) in cultural industry to manage the risks of uncertainty arising from the export of cultural goods. As Young et al. (Reference Young, Hamill, Wheeler and Davis1989) point out, the export is a suitable way for SMEs to enter global markets in that it offers a greater degree of flexibility, needs minimal resource commitment, and has limited risks. Despite these benefits, not many SMEs in cultural industry have actively used the export as a means to expand their markets overseas because of the uncertainty arising from it (Dean, Menguc, & Myers, Reference Dean, Menguc and Myers2000). However, given that the conditions for success in the contents-oriented cultural industry differ from those required in traditional industries, SMEs in cultural industry have to fully take advantage of the export as a means to expand their markets overseas. In this regard, focusing on the Korean movie industry, where most organizations are SMEs, this study has shown that uncertainty management strategies such as market signaling, generalist strategy, and vertical integration can help SMEs in cultural industry to expand their markets overseas while reducing the risks arising from it.
It is also noteworthy that this study attempts to conduct a multifaceted analysis. In fact, the three strategies examined above are different from one another in terms of their analytic level and theoretical background. The first (i.e., the strategy of market signaling) is mainly related with the input of the given resources; the second (i.e., the generalist strategy) is mainly related with the output into the target market; and the third (i.e., the strategy of vertical integration) is mainly related with the organizational structure in the production processes. Most previous studies on uncertainty analyze these strategies separately and examine, for example, the relationship between input resources and the movies’ performance or between the genre strategy and the movies’ performance (Miller & Shamise, Reference Miller and Shamise1996, Reference Miller and Shamise1999; Lampel & Shamise, Reference Lampel and Shamise2003; Hsu, Reference Hsu2006). In contrast, this study integrates these three strategies into a unified frame, and systematically analyzes the effects of these strategies on the export performance of movies.
Meanwhile, focusing on cultural industry, this study serves to expand the scope of research in the field of management. Though creativity and innovation become a central determinant of competitive advantage in the 21st century (UNESCO, 1982; Steinert, Reference Steinert1998; Caves, Reference Caves2000), scholars in the field of management have paid little attention to cultural industry (Greenfeld, Reference Greenfeld1988; Bielby & Bielby, Reference Bielby and Bielby1994; Alexander, Reference Alexander1996). By examining uncertainty management strategies in cultural industry, however, this study serves to significantly broaden the scope of research in the field of management.
Similarly, focusing on the export of cultural goods, this study contributes to the international business field. Despite the increasing economic importance of cultural goods, previous studies in the field of international business have usually focused on the export of manufactured goods while paying little attention to cultural goods (Hanson & Xiang, Reference Hanson and Xiang2011). Researches on cultural goods such as movies have barely existed so far (JayaKar & Waterman, Reference Jayakar and Waterman2000; Marvasti & Canterbery, Reference Marvasti and Canterbery2005). In this regard, by examining the strategies needed to improve the export performance of movies, this study serves to expand the scope of research in the international business field.
Taking the Korean movie industry as a case, this study also serves to expand our understanding of the movie industry in general. Most previous studies on the movie industry have focused on Hollywood movies (Jayakar & Waterman, Reference Jayakar and Waterman2000; Marvasti & Canterbery, Reference Marvasti and Canterbery2005; Hanson & Xiang, Reference Hanson and Xiang2011). By focusing on the Korean movie industry, however, this study examines the management strategies of non-American movies, that is, of Korean movies, and thereby helps us understand how the Hallyu boom spread into Asian and non-Asian countries in recent years.
This study has a number of shortcomings, mainly because of the limited availability of data. In particular, this study was not able to control for the potential effects of some important variables such as movie production costs and the financial information of the producer or the distributor. In the Korean movie industry, only a few major producers release data on their production costs and financial information. Considering that such data would have a direct impact on the competitiveness of the completed movie, future researches may need to make more aggressive efforts to secure the data. Alternatively, they could analyze only the movies whose production costs have been released, or the movies produced by producers whose financial information is obtainable.
In spite of these shortcomings, we hope that this study would be helpful for understanding the management strategies needed for organizations to reduce the risks of uncertainty arising from the export of cultural goods. Finally, let us suggest some directions for future researches. First, in the sense that this study focuses on only one performance variable, that is, the export performance of movies measured by the number of countries to which the focal movie is exported, we hope future researches will examine other performance variables such as box office hits, financial performance, export values, innovation, and creativity, and examine whether the relationship between the uncertainty management strategies mentioned above and these performance variables is different in foreign and domestic markets. Second, seen in terms of the unit of analysis, this study focuses on uncertainty management strategies at the level of individual movies. So, we hope future researches will extend the analysis to the level of individual organizations and examine the effects of the uncertainty management strategies of each organization as well as of each movie.
Acknowledgements
The author thanks the anonymous reviewers for their constructive comments on earlier versions of this manuscript.
